Strategy and investment process

Rural Funds Group (RFF) is Australia’s only diversified agricultural Real Estate Investment Trust (REIT), and one of very few commercial entities actively seeking to provide property leasing solutions to the Australian agricultural sector

RFF is a rural property landlord, rather than an operator of assets.

The Fund’s strategy is to own productive agricultural assets that are leased to experienced counterparts. The leasing arrangement is designed to provide a stable revenue stream to RFF, supporting regular distributions to investors.

Capital growth is expected to occur over time as the agricultural property assets increase in value driven by increasing competition for farmland to ensure food security, the impact of the emerging Asian middle class and a growing global population.

Australian rural industry

Australia’s rural industries accounted for 2.4% of Australia’s gross domestic product (GDP) in 2012, making it a smaller industry compared to mining (9.6%) and manufacturing (7.3%), though still an industry of substantial scale. The assets that contributed $34 billion to GDP in that year were mainly owned by 93,000 farming families, managing 410 million hectares, with an aggregate household net worth of $121 billion. These statistics are evidence that the country’s agricultural sector is substantial, but largely privately owned.

During 2012, investment in Australia’s rural industries totalled $16.2 billion. However, due to the primarily private capital structure present in Australia’s agricultural sector, this investment was largely financed by either bank debt or retained earnings. Compared to other industries, Australia’s rural industries lack access to alternative sources of capital, such as equity investment or leasing.

Acquisitions

RFF’s business strategy is to deliver leasing solutions to strategically selected Australian rural industries. In doing so, it will generate lease rentals and capital growth from owning and leasing out agricultural assets. Consistent with this strategy, RFF will pursue the acquisition of additional assets that grow the quantum and diversity of RFF’s earnings.

The investment strategy is to invest across the full range of the asset continuum shown below1, with the objective of ensuring the asset mix can continue to fund distributions consistent with current levels.

Spectrum

1The income and growth figures presented in have been provided to differentiate the profile of income and growth that can be derived from different assets. They are based on RFM’s experience and observations of agricultural lease transactions and historical rates of growth. They are neither forecasts nor projections of future returns. Past performance is not a guide to future performance.